The days of throwing money at startups and hoping they succeed are long past. Startups, their founders, executives, and investors need to take a more strategic approach, ideally before any code is written, but certainly before any significant investment occurs.
That's according to Tom Kozas and Michael Sanie.
Tom Kozas is president at Energo Design Solutions, a product management consultancy firm for EDA and IP startups. Michael Sanie is managing director at Maestro International, a high tech marketing and management consultancy. The two companies together offer an integrated consulting approach specialized on accelerating the technology-to-product transition and driving early product adoption.
A few observations from their article:
1) Technology gets out too early (even to early adopters)
It's OK to engage with the technology enthusiasts in target companies. That leads into technical papers for conferences, etc. Nevertheless, to engage with an early adopter (who eventually would drive the early purchase), startups must have some sort of product. There are only a handful of early-adopter customers out there, and you only get one shot at each.
2) Little design and tool usage expertise during product development
Startups begin with people who can develop the technology. They assume bringing design and tool usage knowledge in the process is the job of the early-adopter that will help out flush out the usage. This may have been true back in the prior years of EDA but it is no longer practical to assume that customers have the resources or time to help you transition and polish your technology into product. Hence there is no focus on "user-experience" (We're not referring to user-interface " we're referring to "finishing" a product). The core technology is what makes the product (and one obviously needs that) but user-experience is what sells the product. It's important to note that in enterprise and SaaS software models, the "user-experience" is considered as an important part of the core technology.
3) Sales force is built too early
It's hard to know when to bring sales teams on board. They're either brought in too early or too late " and each with its own set of challenges. Startups prefer to err on the too-early side. Bringing sales early creates (purposefully) a barrage of engagements with potential customers, creates a overflow of feature ideas (perfectly normal for a technology still maturing), and adds a flurry of phone calls, emails, and meeting requests for the startup as a whole, which eventually puts R&D in a reactive (non-innovating) mode. Ultimately the product is not ready and the sales (or marketing) team get blamed for not selling. Non-existent booking leads to lower than expected compensation, sales team gets frustrated which leads to costly turnover.
In addition, most often a VP of sales is hired based on their Rolodex and how many early engagements she can start, and not necessarily on the ability to turn early technology engagements into product sales (which is its own talent). Lots of technology engagements start and get into the pipeline as sales opportunity (which they're really not).
4) Marketing efforts are focused on tactical PR
Startups try to reach their customers with press releases, which in itself, are not a bad thing, but are done very tactically and without a grander strategic communication plan that takes in consideration target segmentation, corporate positioning, competitive landscape, and even the long-term exit strategy.
Communication pieces are written around technology (not product/benefits) positioning, focusing on "same problem, better approach", rather than "specific problem, simplified approach".
5) Burn rates can quickly grow greater than 3x once the technology gets out (if product is not ready)
When early adopters get involved too early with the technology, startups begin to throw excessive money at the fixing the problems; hiring more sales, overly optimistic pipeline, fire fighting, last minute travel, turnover, etc. These lead to a quick ramp in burn rate while revenue is barely coming in.
The authors conclude:
The fate of EDA startups, and arguably EDA as a whole, depends on how profitably EDA innovations can be turned into products, purchased by early adopters, and grow the early user majority. EDA startups, while developing core technology, need to focus on completing the technology-to-product transition rapidly and focus on reaching self-sustained profitability quickly.
Easier said than done?
The authors can be reached at tomk@EnergoDesign.com and firstname.lastname@example.org.